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Miami-Orlando rail project struggles with tough bond market

All Aboard Florida gets more time to sell $1.75 billion bonds

There was very little action at the Brightline express construction site in downtown Miami.
There was very little action at the Brightline express construction site in downtown Miami.

MIAMI – A privately owned company, pushing a modernized three-hour train service from Miami to Orlando, appeared to be struggling to find investors to keep the massive project on track for 2017.

The Florida East Coast Industries -- doing business as All Aboard Florida -- has the backing of the Fortress Investment Group, a New York-based firm that claims $46 billion in assets.

The project -- now touted as Brightline -- will cost more than $3.1 billion, Brightline/All Aboard Florida spokeswoman AnneMarie Mathews said.

To raise some of the money for the train service, All Aboard Florida has earned the support of federal, state and local government officials but has struggled to meet deadlines to show that there is support from investors. 

The company is using private-activity bonds, a financing tool meant to encourage public-private partnerships to improve transportation infrastructure. The tool includes some of the benefits of a municipal bond by serving a public purpose, but it allocates at least 10 percent of the proceeds for private use.

"The interest paid to bondholders is not includable in their gross income for federal income tax purposes," said Michael Dobzinski, a spokesperson for the Internal Revenue Service. 

As of December, the U.S. Department of Transportation issued $5.9 billion in private-activity bonds. All Aboard Florida got the largest allocation in the country, with $1.75 billion in 30-year tax-exempt private-activity bonds.

On Monday, All Aboard Florida had already gotten approved for a second extension of the deadlines to sell the bonds. After the company missed the July 1, 2015, and Jan. 1 deadlines, it got an extension until Jan. 1, 2017. All Aboard Florida spokeswoman Melissa Shuffield said the extension gave the company "flexibility to pursue the most appropriate structure for the long-term financing."

The U.S. Department of Transportation and the Florida Development Finance Corp., the nonprofit conduit issuer of the bonds, approved the sale of the bonds in 2014. There will be more money coming. President Barack Obama signed into law a five-year, $305 billion federal transportation funding measure in early December that established new freight-specific programs.

The credit crisis, linked to the drop in the price of oil and China's currency devaluation, is making it difficult for companies to finance operations.

Although there is a surging demand for tax-exempt debt, as it remains less volatile than other forms of investment, private sector bonds carry a greater risk. 

The $3.7 trillion municipal-bond market, debt security issued by local governments to finance expenses, has gained money, according to the Lipper U.S. Fund Flows data. New corporate debt issuance has been in negative territory since September, according to Securities Industry Financial Markets Association data. 

The project has also faced some opposition. While in downtown Miami the project enjoys the support of real estate investors with the Miami Worldcenter development, there are pending lawsuits from opponents in Indian River and Martin counties. In Stuart, boaters worry about closings at the St. Lucie River bridge. 

At the construction site, near the Wilkie D. Ferguson Metromover station, in downtown Miami on Monday night, signs announcing the presence of Suffolk Construction were up. The company was working with Skidmore, Owings & Merrill architects to build the Miami station. 

The vision for the site in Miami includes a 59,000-square-foot station facility, a 41,000-square-foot loading area, a 180,000-square-foot passenger platform, 178,000 square feet of retail space and 800 parking spaces.

The Brightline rail service will use the existing Florida East Coast Railway corridor between Miami and Cocoa. The new construction includes a 40-mile track along State Road 528 between Cocoa and Orlando.

All Aboard Florida entrusted Siemens, in California, with their 32 trains. These will travel a 235-mile route, with stops in downtown Miami, Fort Lauderdale, West Palm Beach and Orlando daily, Mathews said. 

Mathews said the Miami and West Palm Beach stations were going to open early 2017, and the station at Orlando International Airport was set to open late 2017. Although the ticket prices have yet to be announced, the company estimates $400 million in annual revenues by 2030.

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